# Schedule I, Para 2: Supply between Related/Distinct Persons

## The Provision

Supply of goods or services between related persons or between distinct persons as specified in Section 25, made in the course or furtherance of business, is deemed supply EVEN WITHOUT CONSIDERATION.

## A. Related Persons [Section 15]

Persons are deemed related if ANY ONE of the following applies:

#	Test
1	Officers/directors of one another's business
2	Legally recognised partners
3	Employer and employee
4	Third person controls/owns/holds (directly/indirectly) ≥ 25% voting stock of both
5	One controls the other
6	A third person controls both
7	They together control a third person
8	Members of the same family
9	One is sole agent / sole distributor / sole concessionaire of the other

### Family [Section 2(49)]

'Family' means:

(i) spouse and children of the person, AND
(ii) parents, grandparents, brothers and sisters — only if wholly or mainly dependent

> Note: Spouse and children are always family. Other relatives are family ONLY IF dependent.

## B. Distinct Persons [Section 25]

### Sec 25(4) — Multiple Registrations

A person with more than one registration (same state or different states) is treated as distinct persons for each registration.

### Sec 25(5) — Establishments in Different States

If a person with registration in one State/UT also has an establishment in another State/UT, both shall be treated as establishments of distinct persons.

### Explanation 1 to Sec 8 of IGST Act

India establishment and overseas establishment of same entity = distinct persons.

## C. Stock Transfers and Branch Transfers

Scenario	Deemed Supply?
Two units with separate registrations (same entity)	YES (distinct persons)
Two units under single registration	NO
Cross-border establishment transfer	YES

Example: Raghubir Fabrics transfers 1000 shirts from Lucknow factory to Kanpur showroom.

Single UP registration covering both → NOT supply
Separate registrations for each → IS supply

## D. Employer ↔ Employee Transactions

### Services from Employee to Employer

Services in course of employment → Schedule III → NOT supply

### Perquisites from Employer to Employee

Perquisites per contractual agreement → NOT subject to GST

### Gifts from Employer to Employee — The ₹50,000 Rule

Gift Value	Treatment
Up to ₹50,000 per FY	NOT supply
Exceeding ₹50,000	Treated as supply

## Key Memorising Anchors

1. Related + Business = Supply even free

2. Same legal entity but different GST registrations = Distinct persons → transfers are supplies

3. Employer-Employee gifts up to ₹50,000 = NOT supply

## Practical Examples

Scenario	Supply under Para 2?
Ms. Priya holds 30% in ABC and 35% in XYZ — ABC supplies goods free to XYZ	YES (≥ 25% common shareholding)
Q Ltd. controls R Ltd. — Q sends consultancy free to R	YES
Rishabh Enterprises' Maharashtra restaurant supplies free meals to unregistered Uttarakhand liquor shop	YES (distinct persons)
Diwali gift hamper worth ₹40,000 from employer	NOT supply
Diwali gift watch worth ₹75,000 from employer	SUPPLY

Worked example

### Example 1

Example 1 – Distinct persons stock transfer: Asha Industries has registered GSTINs in Delhi, Karnataka, and Tamil Nadu. Transfers textile inventory worth ₹10 lakh from Delhi to Karnataka without invoice.

Multiple registrations → distinct persons
Made in course of business
Conclusion: Deemed supply; tax invoice required; IGST applies

### Example 2

Example 2 – Related person test: Mr. Sharma is director on boards of both Alpha Ltd. and Beta Ltd. Alpha provides free management services to Beta.

Common directorship = related persons
Conclusion: Deemed supply; valued at open market value

### Example 3

Example 3 – Employer gift exceeding ₹50,000: Company gifts a watch worth ₹1,20,000 to an employee on retirement (not contractual).

Gift exceeds ₹50,000
Conclusion: Treated as supply; GST on full value

### Example 4

Example 4 – Same-registration stock transfer: A trader with single Maharashtra GSTIN covering both Mumbai HO and Pune warehouse transfers stock internally.

Single registration → NOT distinct persons
Conclusion: NOT supply

⚠️ Common exam mistakes

Treating ALL employer-employee transactions as supply — employment services excluded under Sch III, gifts ≤ ₹50,000 also excluded
Forgetting the ₹50,000 threshold is per financial year
Assuming branch transfers within same registration are taxable
Missing that family excludes parents/siblings UNLESS dependent
Forgetting cross-border establishment rule under IGST Sec 8 Explanation 1

Bare-Act text Schedule I, Para 2 read with Section 15, Section 25(4)/(5), Section 2(49); Explanation 1 to Section 8 of IGST Act · CGST Act, 2017 · click to expand

Schedule I, Paragraph 2: Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. Section 2(49): 'family' means — (i) the spouse and children of the person, and (ii) the parents, grand-parents, brothers and sisters of the person if they are wholly or mainly dependent on the said person.

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Schedule I Para 2 - Supply between Related or Distinct Persons

Worked example

⚠️ Common exam mistakes